What is an FHA loan?

An FHA loan is a mortgage insured by the Federal Housing Administration (FHA), designed to make homeownership more accessible, especially for first-time homebuyers and those with less-than-perfect credit. These loans are issued by FHA-approved lenders, such as banks and credit unions, but are backed by the government, which allows for more flexible qualification criteria.

PROS

• Lower Credit Score Requirements: Borrowers with credit scores as low as 500 may qualify, though a higher score is typically needed for better terms. 
• Low Down Payments: Down payments can be as low as 3.5% for borrowers with credit scores of 580 or higher. ​ 
• Mortgage Insurance Premiums (MIPs): FHA loans require both an upfront MIP and annual premiums, which can increase the overall cost of the loan. ​ 
• Debt-to-Income Ratio: FHA guidelines may allow for higher debt-to-income ratios compared to conventional loans, aiding borrowers with existing debts. ​ 
• Property Standards: The property must meet FHA’s minimum property standards and serve as your primary residence. ​ 

CONS

• Mortgage Insurance Costs: Upfront and ongoing MIPs can add to the overall expense of the loan.​ 
• Property Restrictions: Certain property types may not qualify, and the home must meet specific standards.​